Could March Madness Leave CBS?

CBS has held the television rights to the NCAA Tournament since 1982. CBS has paid handsomely for them over the years. The most recent extension was for $6 billion over 11 years that runs through 2013.

CBS smartly included digital media rights -- which includes the streaming of the games over the internet. This has created a new revenue stream for CBS. And as it has invested in and improved the live streams, CBS has seen its ad revenue grow from it. This year, CBS expects ad revenue from the online streaming to be around $30 million, an almost 30 percent increase from last year in spite of the recession.

Of course, internet ad revenue is still only a small portion of the overall revenue brought in by CBS. Last year, the total ad revenue for CBS was $643 million. This year, the company admits it will not come close to that number. It will, however, at least break even on the amount it must pay in rights (though, some seem more optimistic than merely breaking even). The contract calls for fees to escalate every year under the contract. This year, CBS pays the NCAA $571 million.

As good a deal as this has been for the NCAA, they face an interesting choice. The NCAA can choose to opt out of the current deal with CBS after 2010. No one seems to expect Fox or NBC to be that interested in trying to outbid CBS. It all comes down to the 800-pound gorilla of TV sports -- ESPN/ABC.

Still, the option gives the N.C.A.A. a chance to test ESPN's avidity. Its dual flow of revenue from advertisers and subscribers enabled it to outbid Fox by $100 million in November to carry the Bowl Championship Series from 2011 to 2014, but the economy has worsened since then.

The price for the tournament, even a year from now, may make even the mighty ESPN blanch, especially if it cannot raise its industry-high subscriber fees or charge enough for advertising to justify an enormously expensive deal.

I think they are underestimating ESPN/ABC/Disney on this, even in a bad economy. ESPN has been willing to put up big money for events like this. With their multiple channels, they can saturate this and create lots of advertising streams to make it pay. Their infrastructure to run the tournament is already in place -- unlike any other competitors for the rights.

On the internet streaming portion, this would also work very well for ESPN. The company already has a platform in place in the form of ESPN360.com. The service is free to viewers, as long as your broadband provider has agreed to terms with ESPN for providing it (more subscription fees). The NCAA Tournament would provide ESPN with more leverage in getting broadband providers to pay to be a part. That would be vital, since the giant cable broadband providers, Comcast and Time Warner, have no agreement to show ESPN360.

That would be a major issue for fans, especially if ESPN continued the exclusive deal with DirecTV for a March Madness package to show all the games from the first three rounds, further shutting out the cable companies.

That's not to say anything will change. The NCAA has a year to evaluate how the economy is looking and evaluate whether ESPN would be serious in paying large for the NCAA Tournament. Waiting for the end of the contract with CBS in 2013 would also give the NCAA a chance to evaluate how ESPN handles and promotes the BCS.